Which of the Following Statements Is Correct

question 120

Multiple Choice

Which of the following statements is correct?

• A) Under normal conditions,a firm's expected ROE probably would be higher if it financed with short-term than with long-term debt,but the use of short-term debt would probably increase the firm's risk.
• B) Conservative firms generally use no short-term debt and thus have zero current liabilities.
• C) A short-term loan can usually be obtained more quickly than a long-term loan,but the cost of short-term debt is likely to be higher than that of long-term debt.
• D) If a firm that can borrow from its bank buys on terms of 2/10,net 30,and if it must pay by Day 30 or else be cut off,then we would expect to see zero accounts payable on its balance sheet.
• E) If one of your firm's customers is "stretching" its accounts payable,this may be a nuisance but does not represent a real financial cost to your firm as long as the firm periodically pays off its entire balance.

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Definitions:

Changing Technology

The rapid evolution and adoption of new techniques, tools, and software which can disrupt industries and alter business operations.

Scrap

Material waste or remnants resulting from manufacturing processes, which may have a recoverable value or can sometimes be reused or recycled.

Inventory

The raw materials, work-in-progress products, and finished goods considered to be the portion of a business’s assets that are ready or will be ready for sale.

Irrelevant Costs

Costs that should not be considered in decision-making because they will not be affected by the decision.